By Sanjeev Miglani and Nidhi Verma
NEW DELHI (Reuters) - Anger rose across India on Saturday as banks struggled to dispense cash after the government withdrew large denomination notes in a shock move aimed at uncovering billions of dollars of unaccounted wealth hidden from the taxman.
Hundreds of thousands of people stood outside banks for a third day for long hours trying to replace 500 and 1,000 rupee bank notes that were abolished earlier in the week.
These bills made up more than 80 percent of the currency in circulation, leaving millions of people without cash and threatening to grind large parts of the cash-driven economy to a halt.
"There is chaos everywhere," said Delhi Chief Minister Arvind Kejriwal and a bitter foe of Prime Minister Narendra Modi. He said Modi's move had upended the lives of the poor and working while the rich - whose wealth he had sought to target - had found loopholes to get around the new rules.
People argued and banged the glass doors of a branch of Standard Chartered bank (LON:STAN) in southern Delhi after the security guards blocked entry, saying there were already too many people inside the bank.
Others turned on Modi, criticizing his ongoing visit to Japan while countrymen suffered at home. "He is taking bullet train rides in Japan and here you have old people knocking on bank doors for cash," said Prabhat Kumar, a college student who said he had spent six hours at the line.
"He has made a terrible mistake."
But Modi said he would pursue the war against corruption and tax defaulters even if it meant going back decades to examine records.
"If unaccounted money is found out during the current clean up drive, accounts of tax evaders dating back to the country's independence in 1947 will be checked. If required I will hire people for this task," Modi said in a speech to the Indian community in Kobe.
He said he recognized people faced difficulties as the transition to the new series of bank notes takes place but he was confident they would stand by the decision as part of the war on corruption and to rid India of endemic poverty.
Nearly half of India's 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.
Traders in Delhi's vegetable market said they were considering shutting down the market as cash was running out and banks were dispensing a limited amount.
"We might have to close down until the situation stabilizes," said Metharam Kriplani, the president of the Chambers of Azadpur Fruit and Vegetable Traders.
People in Mumbai said grocers were charging 10 times the price of salt in return for accepting the old cash notes and in Bengaluru some people were using their old notes to buy one-time insurance policies.
The government has asked people to redeem the old 500 and 1,000 rupees notes by Dec. 30. The central bank said there was enough cash available with banks and that it had made arrangements to deliver the new bank notes all over the country.
Modi's move was aimed at shrinking the "black economy", the term widely used to describe transactions that take place outside formal channels and which could be as high as 20 percent of gross domestic product, according to investment firm Ambit.
India has unearthed 1.25 trillion rupees ($18.51 billion) of black money, including 670 billion rupees in the recent income disclosure scheme, since his government came to power in 2014, Modi said.
"Money that has been looted has to be recovered," he said, warning there could be more tough measures against the hoard of illegal money.
But in Dudko, about 75 kms (45 miles) from Delhi, villagers said they were struggling to pay for food and fuel, four days into the cash crunch.
One family was marrying off their daughter later this month and were worrying about their money stuck in the bank. "Bank officials are saying they will give the money on Monday. How will we make purchases," said Sunita, the mother.
Much of India's rural economy is powered by cash transactions with few people having bank accounts or operating one even if they have an account.
Bribe and crime proceeds also go into this underground economy. While announcing the demonetization decision earlier this week Modi had said he also wanted to strike against counterfeit 500 and 1,000 rupee notes that anti-India militants were using to finance acts of violence.
($1 = 67.5299 Indian rupees)